INVESTMENT HIGHLIGHTS

• 4QFY19 core earnings fell by -73.0%yoy to RM3.8m, leading to a total loss of -RM11.0m in FY19

• This was mainly attributable to lower average selling price (ASP) of CPO and higher production costs

• Earnings estimates for FY20 cut by -19.5% to RM43.4m

• Maintain SELL with an adjusted TP of RM1.13

Continues to underperform. IJM Plantation Bhd’s (IJMPLNT) 4QFY19 core earnings came in lower at RM3.8m against a core profit of RM14.0m in 4QFY18. Note that in the preceding two quarters were also in lossmaking position of -RM5.6m and –RM17.1m as at 2QFY19 and 3QFY19 respectively. This was mainly caused by weaker-than-expected CPO price and higher production costs.

Full year FY19 results fell sharply. IJMPLNT’s cumulative 12MFY19 core loss amounted to –RM11.0m as a result of the decline in CPO prices in both Malaysia and Indonesia to RM2,125/mt (-19.5%yoy) and RM1,846/mt (-22.4%yoy) respectively. The fall in CPO’s ASP was at a faster pace as compared to the rise in its FFB and CPO production. In addition, the combined Malaysian and Indonesian operations produced a total FFB volume of 976,395mt in FY19, a mere increase of +4.7%yoy comparing against a high double-digit decline in CPO price. The plunge in earnings was further compounded by the higher production costs.

Production cost pressure. IJMPLNT incurred higher operating expenses in relative to its revenue for 12MFY19. While its revenue fell by -15.6%yoy, operating expenses only went down by -3.2%yoy. This was predominantly due to i) production cost pressure in the Malaysian operations from higher wages for harvesting tall palms, and ii) continued production cost pressures from the increased young mature areas incurring full plantation maintenance and overhead against a start-up yield in the Indonesian operations.

Earnings estimates. Premised on the weak CPO price environment and financial underperformance, we have reduced our FY20 earnings estimates by -19.5% to RM43.4m.

Source: MIDF Research - 30 May 2019